A quick guide to cash-flow forecasting
At a glance:
The management of cash flow doesn’t have to be difficult, but it requires more than a glance at your business bank account.
Controlling the flow of cash allows you to profit from opportunities such as buying an asset that is new, hiring additional employees, or making use of discounts.
Paying on time is critical to maintaining the flow of cash, so don’t allow your debtors slow you down.
A heads up: checking your bank account once a week isn’t cash flow forecasting.
Small-scale business owners who are overwhelmed by the thought of preparing an annual cash flow forecast typically believe that a quick glance at the bank account can be enough to get the job done.
It’s crucial for small business owners to understand that forecasting cash flow is simple and, instead of complimenting things, it can to make managing your business simpler and your odds of succeeding higher.
These are the top tips for cash flow forecasting like a pro.
1. Be aware of the cash flow
Put simply it’s a calculation of cash flow using your transactions into and out - what you are owed and what you have in the bank less what you have to repay.
A cash flow forecast will provide you with the exact amount you’ve got in the form of liquid funds.
Your cash inflows will be mostly made up of sales, while your payment out will cover expenses such as rent, wage, tax and utilities as well as supplier payments.
2. Find out why it is important
If you are in control on your cash flow you are able to run your business more effectively and efficiently.
A lot of small-scale businesses keep stocks, and they need to know how much stock they should keep available and whether they need to purchase in bulk, for example.
If you’re not forecasting your cash flow in a timely manner then you’ll be unable to effectively manage your stocks in the bank or get the most out of the opportunity that occurs – like discounts on orders, for instance, or being able to purchase a new asset.
The cash flow outlook could assist you in understanding whether capital expenditures are feasible and warranted at any time and will help you utilize your funds to their greatest potential.
3. Be ready for the future
When you first start your business you will notice that the changes as growth are often able to creep into your life – for example, the shift of being capable of keeping your company running smoothly, to needing to keep a close eye on fluctuating cash flow.
It’s crucial to think ahead. In the event that you haven’t managed your cash flow, you may find yourself in a stock shortage and not be being able to buy. I’ve also seen people who finance their purchase of stock using personal credit cards. This can be an expensive cycle that is difficult to get out of.
Pre-planning is also important in order to ensure successful financial forecasting.
Consider things like the potential need for staffing, or the seasonal demand for stock. Be sure to take note of your tax obligations like the PAYE and GST. That’s one expense area that small companies get caught by time and time again.
4. You can use the Chase option to make your payments
It is advised that small entrepreneurs collect their payments for invoices as fast as they can.
It isn’t easy to get back a late payment. Chase the invoices that are not paid immediately instead of waiting for them to accumulate.
Invoices that are not paid can have a serious impact on your business, impacting everything including the ability to replenish stocks to having to cut back on your advertising or branding budget.
Be aware of what you owe by checking your cash flow forecast regularly every week every month, at the very least. If you don’t know what’s happening and how they’ll change, it’s impossible to make a proper plan for what’s ahead.
5. Are you stuck? Do not be on your own.
Most accounting software like Xero and MYOB offers the ability to forecast cash flow, which business owners can utilize. And while it is recommended for business owners to be at the top in their financial situation themselves, there’s nothing wrong with making a monthly update alongside your accountant part of the process.
Small business owners are busy enough – sometimes their time should be spent on other aspects of their business. Accounting professionals can assist in organising their forecasts. Speak to your bank’s accountant or small business loan provider for assistance in tackling small business growing pains before they become an issue. It’s better to seek assistance as soon as you think you’ll need it, rather instead of sticking your head in the sand and pray that the issues will go away.
You don’t need to be an accountant to prepare or manage the cash flow forecast. However, you must make it a regular and regular part of your business plan. During uncertain times like an outbreak in the world that is now more critical than ever for small-scale business owners to incorporate resilience into their business and among the most effective methods of doing this is by calculating cash flow forecasts.
